A successful merger with Booker will give Tesco a £500m war chest to fight against wholesale and supermarket price hikes, according to a new report by analysts at HSBC.
It claimed that if the deal, currently the subject of a probe by the CMA, goes through, Tesco would gain far greater synergies than it has predicted.
Tesco has estimated synergies of £200m from the deal but HSBC has estimated the figure to be more in the region of £500m.
Report author Dave McCarthy said he believed the retail giant would re-invest so it could avoid the impact of inflation on prices in both the retail and wholesale sectors of the merged business.
He said it would have a positive impact on Tesco’s suppliers but also put the squeeze on Tesco and Booker’s rivals who, he said, would struggle to follow suit.
“We are firm believers in this transformational acquisition and believe synergies could exceed £500m versus the £200m identified by management,” he said. “Much of these benefits will be re-invested to drive further growth to the benefit of customers, suppliers, employees and shareholders of both companies.”
McCarthy said the impact of the Booker deal following Tesco’s already successful turnaround would “make a great story even better”.
He said Tesco was succeeding in its negotiations with suppliers to avoid passing on inflationary costs to consumers to the same extent as its supermarket rivals, with a volume-driven sales strategy based on reduced promotions in low margin areas and less emphasis on home delivery.
In April chief product officer Jason Tarry said had begun talks with suppliers in key categories to find alternatives to passing on price rises, including longer-term deals for suppliers.
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